Fed's Beige Book shows steady economic activity despite shutdown

Economic activity was little changed in November, while employment declined slightly, as companies grapple with the ongoing impact of tariffs, a closely watched survey on Wednesday showed.

According to the Federal Reserve's Beige Book, economic outlooks were also largely unchanged, with some contacts noting an increased risk of slower activity in the coming months, while some optimism was noted among manufacturers.

The Beige Book is a Federal Reserve System publication about current economic conditions across the 12 Federal Reserve Districts. Reports are published eight times per year. The last report was issued on September 3.

Economic activity was little changed since the previous report in October, the report showed, according to most of the 12 Federal Reserve Districts, though two Districts noted a modest decline and one reported modest growth.

Overall consumer spending declined further, while higher-end retail spending remained resilient. Some retailers noted a negative impact on consumer purchases from the government shutdown, and auto dealers saw declines in electric vehicle sales following the expiration of the federal tax credit.

Manufacturing activity increased somewhat, according to most Districts, though tariffs and tariff uncertainty remained a headwind.

Employment declined slightly over the period, with around half of the Districts noting weaker labour demand.

Companies were limiting headcounts using hiring freezes, replacement-only hiring, and attrition rather than through layoffs, the report added.

In addition, several employers adjusted hours worked to accommodate higher or lower than expected business volume instead of adjusting the number of employees.

A few firms noted that artificial intelligence replaced entry-level positions or made existing workers productive enough to curb new hiring.

Wages generally grew at a modest pace; however, some sectors, such as manufacturing, construction, and healthcare, experienced more moderate wage pressure because of a tighter labour supply.

Prices rose moderately during the reporting period.

Input cost pressures were widespread in manufacturing and retail, largely reflecting tariff-induced increases, but the extent of pass-through to customers varied.

There were multiple reports of margin compression or firms facing financial strain stemming from tariffs. Looking ahead, contacts largely anticipate upward cost pressures to persist, but plans to raise prices in the near term were mixed.